FAQs: TCS on Sale of Goods/Services of value exceeding Rs. 2 Lakhs

Rani Jain

For amendment in Section 206C, sub section 1D of the Income Tax Act, 1961 for Sale of Goods or Provision of Service of value exceeding Rs. 2,00,000:

Extract of Relevant Part of Sub Section 1D of Section 206C

“Every person, being a seller, who receives any amount in cash as consideration for sale of bullion 35[***] or jewellery, or any goods (other than bullion or jwellery) shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax, if such consideration,—

i. for bullion, exceeds two hundred thousand rupees; or

ii. for jewellery, exceeds five hundred thousand rupees.

iii. for any goods, other than those referred to in clauses (i) and (ii), or any service, exceeds two hundred thousand rupees.

Provided that no tax shall be collected at source under this sub-section on any amount on which tax has been deducted by the payer under Chapter XVII-B.”

Q1. Rate at which tax to be collected at source?

A 1. At the rate of 1%, on Sales consideration tax is to be collected at source.

Q2. Value means for collection of Tax at source?

A 2. Here value means Sales Consideration i.e. Invoice Amount.

Q3. If goods/services sold/provided of value Rs. 2,00,000/- whether TCS provisions will be applicable?

A 3. Based on the reading of the provisions, it is inferred that TCS Provision will not be applicable, as act uses the word exceeding Rs. Two lakh, however do not include Rs. Two lakh.

Act – “….value exceeding two lakh rupees”.

Q4. If consideration of amount for goods sold/provision of service received directly in Bank account; whether applicable?

A 4. No, as TCS provision applicable only if any amount of sales consideration received in cash.

Q5. If consideration of amount for goods sold/provision of service, directly deposited by customer in the bank account of seller?

A 5. Yes, then TCS provision is applicable, as amount received in cash but deposited in bank.

Q6. Does receipt of bearer cheque or cheque which is crossed without the words “account payee” amount to receiving consideration in cash?

A 6. Since Section 206 (1D) uses the words cash, and not “otherwise than by crossed account payee cheque or bank drafts” like in other provisions, it would appear that bearer cheque or cheques crossed without the words “account payee” would not be regarded as “cash”. This matter also needs CBDT’s clarification.

Q7. Whether TCS is applicable where goods are exchanged under Barter System [say Motor Vehicle is exchanged for another Motor Vehicle]

A 7. Since TCS is applicable only to receipt of cash as consideration for sale, TCS provisions u/s 206C(1D) shall not apply where payment is received through exchange of goods.

But provided if after exchange, certain amount is received in cash, TCS provision will be applicable and therefore tax @ 1% to be collected on entire Invoice Value.

Q8. Whether TCS to be collected, if Goods sold/Services provided of value exceeding Rs. 2,00,000 purchased/received for personal consumption from Retail Buyer?

A 8. Yes, still TCS provision will be applicable as not exception for such clause is there; every buyer/service provider is covered under these section.

Q9. Collection of TCS to be on Receipt basis or on Invoice basis?

A 9. Collection of TCS to be on Receipt basis; no regards to when Invoice raised.

Act – “Every person being a seller,…………….at the time of receipt of such amount, collect from the buyer…………” – Sub Section 1D.

Q10. In case Invoice generated before applicability of law and amount received in cash after June, 2016; whether TCS provision will be applicable?

A 10. Based on the reading of the provisions, it is inferred that, no liability arises to collect TCS; as event arises (Sale of Goods/Provision of Service) already before applicability of law, no need to collect tax at source along with amount received for sale consideration during the period, law became effective.

Yet the CBDT’s clarification on such issue is pending.

Q11. In case goods delivered/ services provided and complete invoice amount received before June, 2016 and Invoice generated on or after 1st June, 2016; whether liability to collect TCS arises?

A 11. Yes, liability to collect TCS arises, as event; generation of invoice is during the period of applicability of law, however if no amount received in cash during the period of applicability of law, then no need to collect TCS. From customer amount of TCS is to be asked and collected, if required.

For applicability, 2 events must occur – invoice generation + cash receipt, in law applicability period.

Example – Car delivered and complete sales consideration received in May, 2016 but Invoice generated in June, 2016 no need to collect TCS.

However in above example, if in June, 2016 any amount i.e. may be Rs. 5,000 received in cash then liability to collect TCS arises on complete invoice amount.

Q12. Limit of Rs. 2,00,000/- will be considered on amount inclusive of Tax or exclusive of Tax?

A 12. Based on the reading of the provisions, it is inferred that, for Limit amount will be considered inclusive of VAT/Service Tax i.e. Sales Consideration.

Q13. Rate of 1% for collection of TCS to be charged on Value inclusive of Tax or exclusive?

A 13. TCS to be collected on Value inclusive of VAT/Service Tax i.e. on our Invoice Amount.

Act – “…….a sum equal to one percent of the Sale Consideration as income tax”.+

Q14. Discount given to buyer/service provider will be considered or not?

A 14. TCS to be collected on Invoice Value (which is after deducting discount), which means discount to be considered, if and only if discount is given on Invoice value, in case is given through any mode, say by raising credit not discount will not be considered.

Act – “…….a sum equal to one percent of the Sale Consideration as income tax”.

Q15. If bill raised, for two different goods sold/two different services provided and single bill raised, whose value exceeds Rs. Two Lakh, whether TCS provision will be applicable?

A 15. Yes, TCS is to be collected, as the seller/service provider create a single invoice, it can be for two different goods/services. So even though the individual value do not exceed Rs. Two Lakhs, but if the invoice amount exceeds Rs. 2,00,000, then TCS is to be collected from customers.

Q16. In case TDS Provisions are applicable on amount on which TCS provision are also applicable, which provision will override?

A 16. TDS provisions override the provision of TCS {Proviso of Section (206C) (1D) (iii)}. If value of services exceeds Rs. 2,00,000/- and any amount received in cash, liability to collect TCS arises until and unless on such provision of service no amount is deducted under Chapter XVII-B.

Q17. Whether TCS to be collected, in case amount on which TDS not deducted does not exceed Rs. 2,00,000/-?

A 17. Yes, still to be collected consider example given above.

Q18. TDS Provisions applicable on part of the amount only, then TCS is to be collected? If yes, on what amount?

A 18. Based on the reading of the provisions, it is inferred that yes still TCS to be collected, but not on complete Invoice amount, amount of TCS to be collected only on amount on which TDS has not been deducted, provided any such amount received in Cash.

Example – Service provided of Rs. 2,50,000; from service receiver Rs. 2,00,000 received after deduction of TDS on such amount and rest Rs. 50,000 received in cash from service receiver. TCS is to be collected on Rs. 50,000/- at the rate of 1%, therefore from service receiver Rs. 50,500 (50000+500) to be collected.

Example – Service provided of Rs. 2,50,000; and Rs. 2,00,000 received after deduction of TDS on such amount and rest Rs. 50,000 received in cheque, from service receiver; no need to collect TCS.

Example – Service provided of Rs. 2,50,000; and Rs. 2,00,000 received after deduction of TDS on such amount and rest Rs. 45,000 received in cash and Rs. 5,000 in cheque, from service receiver. TCS is to be collected on Rs. 50,000/- at the rate of 1%, therefore from service receiver Rs. 50,500 (50000+500) to be collected.

Q19. Is the threshold limit Rs. 2,00,000 ; transaction-wise/ person – wise or in aggregate?

A 19. Based on the reading of the provisions, it is inferred that the threshold limit for the purpose of collection of tax of Rs. 2,00,000 in case of sale of goods/provision of services should be considered transaction-wise and not aggregate of all the transactions for the year.

Example – In case of Motor Vehicle, to a single customer, 3 old cars are sold of value Rs. 1,50,000 and Rs. 1,80,000 and Rs. 1,90,000 with three different invoice raised.

Now here since limit of Rs. 2,00,000 will be considered transaction wise i.e. Value of each car sold though different invoice, and in above said example no Invoice Value (i..e value of old car) exceed Rs. 2,00,000. Therefore, no liability to collect Tax at Source arises.

Q20. If motor vehicle sold of value less than Rs. 10,00,000 but more than Rs. 2,00,000 and any amount of sales consideration received in cash; whether TCS provision will be applicable?

A 20. Based on the reading of the provisions, it is inferred that still TCS provision will be applicable under sub section 1D; as 3 condition of section satisfied, value of goods(Motor vehicle) exceed Rs. 2,00,000 and any amount of sales consideration received in cash and no provision of TDS applicable on such sale of motor vehicle. So TCS provision will be applicable.

From reading the provision, clause (iii) of sub section 1D excludes only clause (i) and clause(ii) of such sub section, which means clause (iii) covers every event of sale of any goods (i.e. it can be motor vehicle), other than bullion or jewelry of value more than Rs. 2,00,000 provisions of TCS will be applicable.

This matter needs further CBDT’s clarification.

Q21. Whether TCS provisions under section 206C(1D) also cover the goods or services covered by other provisions?

A 21. As there is general rule, one which may follow, which is the “Latin Maxim Generalia Specialibus Non Derogant” i.e. “the provisions of a general statute must yield to those of a special one”.

As per this rule if for particular situation a specific provision is there, then specific provision will override the general provision.

Say for example, motor vehicle of value Rs. 11,00,000 sold in cash, now issue arises is that whether 206C(ID) can result in Duplication of levy of tax, as for such situation already specific provision under sub section (1F) is there.

Here sub section (1F) of such section will prevail.

But the matter should have been clarified by the legislature instead of leaving the taxpayer to the mercy of tax officials.

Q22. Amount of Sale Consideration received in parts/stages?

A 22. Based on the reading of the provisions, it is inferred that; yes, on first receipt itself the TCS to be collected, which means TCS is to be collected along with first receipt itself.

Act – “ Every person, being a seller, who receives any amount as consideration for sale of…………, shall at the time of receipt of such amount, collect from the buyer, a sum equal to one percent of the sale consideration as income tax.: – Sub Sec. 1D.

In case of sale of motor vehicle : – practically, it’s not possible to collect TCS on full amount of Sales consideration, at the time of booking motor vehicle of value exceeding Rs. 10,00,000, with booking amount itself; therefore considering practical life, amount on which 1% to be charged for collection of TCS is Booking Amount.

Further, on every second receipt of sales consideration full amount of Tax can be collected at source less already received at the time of booking a motor vehicle.

Booking amount received will be inclusive of Tax required to collect at source. Means whatever amount we are receiving to book a motor vehicle is 101% which includes 1% of Income Tax collected at source.

Example in case, sale of Motor Vehicle–

• car booked of value Rs. 11,00,000 on 7th June, 2016 with receipt of Rs. 11,000 (here booking amount is Rs. 10891 – 100% and tax Rs. 109 – 1%) &
• On 11th June, 2016 amount received Rs. 5,00,000/- and on 5th July, 2016 rest amount, Rs. 589000/- received.
• Here on 11th June, 2016 along with Rs. 5,00,000 (1st receipt after booking amount) TCS of Rs. 10890/- (1% of Rs. 1089000/-) to be collected and so on 11th June,2016 net amount to be taken is Rs. 510890/- (500000+10890)
• On 5th July, only Rs. 5,89,000/-.

This matter needs further CBDT’s clarification.

Q23. In case, motor vehicle of value more that Rs. 2 Lakh but less than or equal to Rs. Ten Lakh, financed and part amount received from Financer and some amount in cash from buyer, when and how TCS to be collected?

A 23. As from above answer, tax is to be collected at the rate of 1% on booking amount at the time of booking and rest amount of TCS i.e. 1% on sales consideration, after deducting TCS collected at the time of booking; but in Finance case, part of the amount is received from Financer, here at the time of receiving margin money (before receiving money from Financer) from buyer tax at the rate of 1% can be collected, considering practical situation.

This matter needs further CBDT’s clarification.

Q24. Whether liability of TCS arises in case of motor vehicle sold of value more than Rs. Two Lakh in cash and invoice is directly generated by Dealer and invoice value received by Retail Seller? If yes, then on whom liability of collection arises?

A 24. Yes, obvious liability to collect TCS arises, but here the question arises “on whom”. Since the amount of Invoice value is collected by Retail Seller so practically tax should also be collected by Retail Seller itself and be paid by Retails Seller to Government and reflect such transaction in there Quarterly Return; until and unless any clarification or guideline received by Retail Seller from there Dealer.

So it is advisable to collect tax from buyer by Retails Seller only.

Yet the matter need further CBDT’s clarification.

Q25. In case any amount received, refunded to buyer/service receiver after payment of TCS to Government, in the event service being not provided/ or sold goods returned?

A 25. To buyer/service receiver, amount refundable can be amount agreed between seller/service provider and buyer/service receiver, in respect of Goods sold/Provision of Service, not amount collected from buyer/service receiver for TCS can be refunded to buyer/service receiver, as tax collected from customer would being already paid to Government and in Act there is no provision of refund of TCS deposit or to adjust such TCS deposit, only provision for TDS is specified.

So practically, it would not be possible to refund tax to buyer/service receiver on cancellation of services to be provided or return of goods of value exceeding Rs. Ten Lakh after depositing it with Government.

Q26. Non availability of PAN of Buyer.

A 26. For the other part of prepaid taxes, that is TCS, new section 206AA is not applicable. This section covers only the payments under Chapter 17B of Income Tax Act. TCS falls under Chapter 17BB. So any Tax collected through TCS provision, does not makes sense of higher rate determination i.e. 20% for PAN deficiency.

Act – As per section 206AA, furnishing of PAN by the persons entitled to receive any sum under chapter XVIIB of the Income Tax Act, 1961 (“Act”) is now mandatory w.e.f 01.04.2010 failing which TDS has to be deducted at the higher rate.

Final thoughts

In order to reduce the quantum of cash transaction in sale of any goods and services and for curbing the flow of unaccounted money in the trading system and to bring high value transactions within the tax net, it is proposed to amend the aforesaid section to provide that the seller shall collect the tax at the rate of one per cent from the purchaser on sale of goods/ provision of services of the value exceeding two lakh rupees

What do you think of this new Tax Collect at Source? Please feel free to share your thoughts in comments section below.